Euro strengthens as Spain’s borrowing costs decline

The euro approached a 10-month high against the dollar as Spain’s borrowing costs fell at a 4.5 billion-euro ($6 billion) sale of bonds, underscoring increased confidence in European debt markets.

The shared currency climbed against most of its 16 major peers, while the yen slid to the weakest level since 2010 after Economy Minister Akira Amari said his earlier comments that excessive weakening of the currency was harmful were misinterpreted. The Swiss franc fell to the weakest level versus the euro since the nation’s central bank imposed an exchange- rate cap in September 2011.

“Investors are reassured that we’re not going to see an imminent deterioration in Europe from a fiscal point of view,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, said from Toronto in a telephone interview, “We’ve seen sovereign spreads narrow and market-stress indicators continue to improve.”

The euro appreciated 0.4 percent to $1.3347 at 12:44 p.m. New York time after climbing earlier as much as 0.7 percent. It touched $1.3404 on Jan. 14, the strongest level since Feb. 29. The euro rose 2.1 percent to 119.94 yen. Japan’s currency dropped as much as 1.7 percent to 89.91 per dollar, the weakest level since June 2010, before trading at 89.85.

The dollar pared its loss versus the euro after data showed U.S. housing starts rose 12.1 percent last month, more than forecast, and initial claims for unemployment benefits fell last week to 335,000, the lowest level since January 2008.

Volatility Climbs

Implied volatility climbed for a third day, reaching a four-month high. JPMorgan Chase & Co.’s G7 Volatility Index, based on three-month options on Group of Seven nations’ currencies, reached 8.81 percent, the most since Sept. 3, exceeding its 200-day moving average of 8.74 percent. It fell to 7.06 on Dec. 18, the lowest since August 2007.

Switzerland’s currency slid against all of its 16 most- traded peers except the yen as speculation Europe’s debt crisis is easing sapped demand for haven assets. The franc weakened as much as 1 percent to 1.2490 per euro before trading at 1.2482, down 0.9 percent. The Swiss National Bank capped it at 1.20 per euro after it surged to 1.008 per euro in August 2011.

“People are going back into risk assets,” Eimear Daly, a currency-market analyst at Monex Europe Ltd. in London, said in an interview on Bloomberg Television’s “The Pulse” with Guy Johnson. “People were so concerned about risk and were holding the Swiss franc as a highly liquid asset; now the fear has abated, and that’s going to pull the euro up against the franc.”